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Happiness as a guide to labor market policy

Happiness is key to a productive economy, and a
job is key to individual happiness

Elevator pitch

Measures of individual happiness, or well-being,
can guide labor market policies. Individual unemployment, as well as the
rate of unemployment in society, have a negative effect on happiness. In
contrast, employment protection and unemployment benefits can contribute to
happiness—though when such policies prolong unemployment, the net effect on
national happiness is negative. Active labor market policies that create
more job opportunities increase happiness, which in turn increases
productivity. Measures of individual happiness should therefore guide labor
market policy more explicitly.

Key findings

Pros

Unemployment has a significant
negative effect on individual happiness and is comparable to
personal trauma such as divorce or a death in the family.

Policies designed to increase
employment opportunities also increase happiness.

Policies aimed at reducing income
inequality, such as minimum wages, will increase happiness.

Cons

The pain and subsequent unhappiness
of losing a job is not fully compensated for by finding another
job, unless this occurs seamlessly.

Employment protection can increase
unemployment for “outsiders” and hence be associated with
unhappiness.

Favorable unemployment benefits may
prolong the period of unemployment and thereby reduce
happiness.

Minimum wages may reduce happiness
if they lead to more unemployment.

Happiness-increasing policies have
winners and losers, so there is risk to governments in
introducing happiness-increasing policies.

Author's main message

The way a society is organized is meant to
contribute to personal happiness and well-being. Employment is central to an
individual’s happiness, while unemployment negatively affects long-term
happiness. Reducing employment protection and the duration of unemployment
benefits can increase happiness as they reduce unemployment, but the timing
and targeting of such policies is important. Happiness at work increases
workers’ productivity. So if a government wishes to ensure national
well-being, as well as greater productivity, it should put full employment
center-stage among the goals of its economic policy.